Australia implemented accrual accounting for financial statements in the early 1990s and accrual budgeting in the 1999-2000 budget, progressing to ensure manageable change. The key considerations for other countries considering accrual budgeting include defining benefits, realistic timelines, and staff training. While accrual accounting and budgeting provide a more comprehensive financial representation, they may be perceived as costly and complex relative to cash accounting.

1. 1
Accrual Accounting and Budgeting:
For, against and key lessons from Australia’s
experience
Jane Halton AO PSM
Secretary, Department of Finance
Australian Government
OECD, Stockholm, 10 June 2016

2. 2
Australia’s implementation experience
Australia adopted accrual accounting for annual financial statements in
the early 1990s. It adopted accrual budgeting in the 1999-2000 Budget.
The implementation was progressive to enable the degree of change to
be managed effectively.
The preparation basis and coverage of the Budget and Financial Reports
is as follows:
• Both the Budget and Consolidated Financial Statements (CFS) are
prepared on an accrual basis with valuation of assets at fair value.
• Legislature authorises expenditure on an accrual basis (except for
depreciation).

3. 3
Australia’s implementation experience (continued)
• Financial statements and the Budget comply with Australia’s
equivalent to International Financial Reporting Standards (IFRS).
• Financial statements - but not Budgets - are audited by the
Auditor-General.
• The Budget presents key aggregates in both accrual and cash terms
although Governments and the public often focus on cash figures.

4. 4
Implementation considerations
For countries that are considering implementing accrual budgeting,
some of the most important considerations associated with
implementation include:
• Benefits need to be clearly defined and agreed by all stakeholders,
including political stakeholders and the supreme audit institution;
• Ensuring that the project timeline is realistic;
• Ensuring that finance staff are skilled and adequately trained; and
• Ensuring that IT systems are capable of producing statements and
fully tested.

5. 5
Advantages and disadvantages of accrual accounting
Advantages
• Recognises assets and liabilities, meaning these items are more likely
to be managed (for example – superannuation liabilities);
• By recognising revenues and expenses at their occurrence rather than
when the cash flows, financial statements better represent the
accounting and economic impacts in the current reporting period; and
• Includes cash flows, which are important for treasury management,
and may be required for legal appropriation purposes.

6. 6
Advantages and disadvantages of accrual accounting
Disadvantages
• It costs more to implement and maintain than cash accounting;
• It may not be perceived to add significant value in countries where
government financial management focuses on compliance with
appropriations rather than more comprehensive financial
management; and
• Accrual accounting is less intuitive than cash accounting for complex
financial issues (examples – superannuation accounting; insurance;
financial derivatives). This is one reason why cash measures may be
preferred by some Governments.

7. 7
Advantages and disadvantages of accrual budgeting
Advantages:
• All the advantages of accrual accounting, plus....
• Appropriations are based on the full cost of the activity – this allows
better decision making about new measures during the budget
process;
• Allows realistic comparisons with external benchmarks for assessing
contestability, outsourcing, shared services, or simply the efficiency of
administration functions etc;
• Eliminates the bias in budget aggregates and decision-making of
including lumpy capital expenditure only when the cash passes, such
as that on major defence or ICT systems;

8. 8
Advantages and disadvantages of accrual budgeting
Advantages: (continued)
• In conjunction with other initiatives such as forward estimates and
long-term fiscal sustainability reporting (such as Australia’s
Intergenerational Report), better highlights the long term budget
consequences of policy decisions; and
• Facilitates decentralised financial management by allowing agency
heads to manage the cash flows associated with their budgeted
expenditure.

9. 9
Advantages and disadvantages of accrual budgeting
Disadvantages
• Many countries are of the view that the advantages are not sufficient
to justify the cost, or that their models of public sector accountability
don’t encompass the above advantages; and
• Requires consideration of a range of sometimes complex technical
issues – for example capital use charges.